Before we begin I need to make clear that what you will read below are the developing opinions of a perpetual student. I am still very much an infant in cryptoland. I am not an energy expert. I am not a market expert. If you believe my opinions to be ill-founded — by all means, educate me.
That being said, we need to talk about Power Ledger (POWR). In the latest episode of Crypto 101, Matthew interviewed Dr Jemma Green, POWR’s co-founder and Chair. Boasting the slogan “The Democratisation of Power” Power Ledger claims to be a disruptive technology project in the energy sector with the intention of building a peer-to-peer market platform for trading electricity.
POWR wants to allow those of us with solar panels (what they call prosumers) to sell their excess power to those who do not (consumers). When I hear this it sounds awesome. Finally, we can take control of our energy production and consumption and enter into a new sharing economy within our local communities. We can trade locally, efficiently, ethically, and without need of giant energy corporations halting innovation. This is it. This is the beginning of the democratisation of energy, right?
Well, maybe.
One of the revelations of the podcast was in Dr Green’s elaboration on how the marketplace will actually work. Here is where my head cocked and my brow furrowed a little. POWR is designed in a way that requires BOTH the prosumers and consumers to sign up with their energy provider to be ALLOWED to use the grid to conduct their trades. POWR refers to these energy providers under their unique branding of “Application Hosts.” An Application Host is any centralised power company who already controls the distribution infrastructure and power supply for the houses entering into what was promised to be — but is now looking a lot less like — a peer-to-peer relationship.
POWR is designed so that these Application Hosts sell their regular customers Sparkz — a POWR trading token. People can use these Sparkz to buy power from their neighbours who are looking to sell their surplus. Sparkz are tied to fiat currency. Green mentions in the podcast that 1 Spark = 1 of whatever the lowest denomination of a local currency, (so here in Australia that would be 1 cent). Though their website uses the example 1 Spark = 1 dollar — something worth clarifying before buying (scroll to the 11th Question under ‘technical’). Whatever the value, it will be tied to the local fiat.
So, the way that the system works is by first identifying everyday people who are concerned about energy usage and cost, who want to “democratise power” and participate in the sharing economy using blockchain technology. Then setting up a system where they can only do so with the blessing of the giant energy corporations who already own the infrastructure and dominate supply.
When this occurred to me I assumed I had to be mistaken, I must have missed some key protocol or governance layer that would keep the centralised power-houses out of this initiative. Maybe these giant companies won’t be allowed to become Application Hosts? Only smaller start-ups or local solar farms would be?
Nope.
One of POWR’s website FAQs reads “Do you envisage that a very large scale generator or retailer would become an Application Host?” POWR’s official answer:
“A large-scale retailer, yes for sure, a large-scale generator could also become an Application Host.”
Great. So we are back to negotiating with the energy companies. These are the same energy companies, who for decades, have largely resisted the science of climate change and the overwhelming consumer outcry for clean energy because trading in planet-destroying fossil fuels is far more profitable. Now we, on the cusp of a truly disruptive, innovative revolution in blockchain technology, are stood, hands wringing, heads down, stuttering and stammering, asking for THEIR permission to play with energy on the blockchain!
Really?
In the featured introduction video on their website, Green makes reference to a successful trial conducted at the National Lifestyle Villages in Busselton. In my search for any public report or information regarding this trial, I found nothing published by POWR themselves. Unless we count 3 short sentences in their whitepaper boasting it as a “huge success” — great, share this success with us! Show me why it was a success!
I can think of one reason why the trial might have been a success — by all accounts, it did not involve a centralised power company acting as the middle-man. There was no giant supplier selling Sparkz to people wanting to purchase excess solar from their neighbours. It seems (and remember I am only working from inferences here because there is just so little information about this trial) that the POWR team organised an in-house arrangement with the National Lifestyle Villages where they created a closed solar system to test the feasibility of trading excess power via blockchain technology.
If I am understanding this correctly, the success of the trial simply shows the success of trading on the blockchain — which we already know. They tested how sharing excess energy between neighbours is a good idea — which we already know. They tested how increasing the sense of ownership of everyday consumers over their power usage and generation is a good idea — again, we know.
The trial was a “success” because it was a test of a true peer-to-peer energy economy. But that doesn’t seem to be what POWR will implement in the real world.
If there was any doubt about the model POWR is proposing for the real world in their attempt to “democratise power” it was cleared up with this quote from Green:
“I have solar panels on my roof. I sign up with my electricity company to sell my surplus electricity to my neighbour. My neighbour buys Sparkz from the energy company. I sell them my electricity and I receive Sparkz. So I have $20 of Sparkz in my wallet. Then I want to get the $20, so I give the power company my Sparkz and they give me $20.”
No joke, I listened to this about 15 times, trying to un-cock my head and un-furrow my brow. Neither happened.
What Green is describing, is a more convoluted version of what is already happening between houses with solar panels and those without. Those with solar generation as part of their energy set-up, already sell their excess power back to the energy companies, who pay them what is called a “feed-in tariff.” Then the companies simply sell from their stocks of energy (of which the solar surplus is part) on to households demanding it.
So if POWR is just a more convoluted way of doing what is already being done — just with a little blockchain sprinkled on top — then the benefits must surely come down to price, right? It must be cheaper to purchase power with Sparkz than it is to just purchase power directly from an energy provider.
Nope.
Why would this be the case? The energy providers (Application Hosts) are the ones SELLING the Sparkz in the first place. POWR users are still trading in the energy company’s commodity, on their infrastructure, with their permission. Why would they add this blockchain model to their already exorbitantly-successful arrangement if it was only going to be profitable to their dependant consumers? A profit to customers is a loss to providers. It is a closed system between us and them.
The cost of Sparkz are fixed to fiat, the cost of energy won’t be different just because you’re buying it from your neighbour with Sparkz. You bought the Sparkz from the energy company. That same energy company is allowing your neighbour to “sell” their energy.
It’s a game.
I keep thinking I must be missing something here. Is this really it? Is this the proposal?
The cost of energy consumption in my state of Queensland is anywhere up to 12c per kWh and the average feed-in tariff is around 7c per kWh. Meaning the energy company is netting approximately 5c per kWh on excess electricity generated by households with solar. Do you not think they will factor this in when we come knocking on their door asking for permission to trade our electricity locally for digital tokens among ourselves?
Another factor to consider are taxes. This will obviously differ from country to country, and Green says as much. But ultimately those selling energy on the Power Ledger will be generating an income. Green admits:
“Like any income you make in the year, you need to declare that on your tax return.”
However, in Australia, feed-in tariffs — selling energy back to the grid — is NOT taxable. So if I am selling power back to the grid without POWR, that 7c per kWh is deducted from my energy costs, tax-free, straight into my back pocket. If I were to use Sparkz instead, I would be paying tax on that sale. What is the point?
No, honestly. Am I missing the point?
Another hidden detail is the fact that surely POWR intends to make a profit from this whole setup too. Though I have not been able to find any public information on how much of a cut they will receive for each transaction. If you find this, please share!
If this all seems a bit confusing, don’t worry, POWR’s introduction video concludes with the question: ‘how do we make sure it works?’ Their answer was more or less “trust us, we are experts” — I don’t know about you but I think answers like this are pure bullshit.
If I had any doubt about where my train of thought was leading me in researching POWR and listening to the podcast, it was completely obliterated when Green was asked about how decentralised POWR truly was. Who can participate, everyone? If so, how might we judge the ethics of the use of profits made by people selling their energy? The classic cryptocurrency moral question. Green had this to say:
“You can’t get on the network unless you have an account with an electricity company… a citizen that is worthy of having an electricity account with a regulated electricity company… You can’t trade peer to peer unless your energy retailer verifies your meter and allows you to do that”
That about sums it up for me. This is not the democratisation of the power industry. This is a child asking their parents for play money so they can pretend to buy what’s in the fridge.
Do not get me wrong, I want a project whose goal is to democratise and decentralise the way we consume and pay for power to succeed. We need a project like that to succeed. But is POWR it? I understand it is a complicated space, but this doesn’t feel like our best effort at decentralising the energy market.
On the cover page of their whitepaper POWR states:
“We believe empowering individuals and communities to co-create their energy future will underpin the development of a power system that is resilient, low-cost, zero-carbon and owned by the people of the world.”
Yeah, I do too. So why aren’t we doing that?
As I mentioned, I want to be educated about this. I would love it if these impressions were misguided. If I haven’t understood the project, please tell me why below.
CRYPTO 101 
While you raise some fair discussion points – I do believe that yes, some of your comments are both inaccurate and ill-founded and I will attempt to educate you
1. An application host does not have to be a large corporation. It can be a small “modern” energy retailer, community micro grid or apartment complex as an example. Asset germination events will allow POWR token holders to invest in renewable energy assets such as a community solar array. So I dispute your argument that it is not decentralised
2. You say that the feed in tariff (FiT) already provides what PL does – sale of energy back to the grid and purchase of it from consumers.
It’s different. You say yourself that the FiT energy becomes surplus energy to the grid. There is no way of accounting for who actually consumes that energy currently – it’s mixed up with every other electron on the grid. Therefore there is no benefit passed onto the consumers of that energy – they still pay 30c per KWh. With PL they can buy that energy at a reduced rate, thereby incentivising both prosumers and consumers to be part of a p2p system
3. You say that the income generated by selling the energy would be taxable income. In Australia in fact there’s no guidelines for p2p energy trading from the ATO except to say that it depends on the intention of the income stream. If you set up a commercial 10Mw solar array with a view to making a profit then yeah – you’re probably going to have to pay tax. 6Kw on your residential roof would fall under personal use / hobby.
I don’t think most governments, particularly Australia with our energy crisis, are going to penalise Mum and Dad taxpayers by imposing income taxes on renewable energy generation from their home solar panels
https://www.energymatters.com.au/rebates-incentives/feedintariff/
4. You’ve focussed on why large retailers might not adopt this. Firstly – they’re going to have to do something or people will go off grid. Smaller players will take market share that do offer such services as p2p trading. They need to do something to stay relevant.
Secondly, you’ve ignored microgrids which is a large market in itself particularly in developing countries. Regulations for the main grids will take time to work out – microgrids can use PL’s platform now.
The regulatory framework for main grids may have some hurdles- but regulators aren’t there to stifle innovation and keep us in the last century. Market innovators such as PL are key to shaping what the new regulatory framework will be moving forward.
I’ll leave you with an analogy. People said cars will never work when we had horses and dirt tracks. They didn’t fail. We built roads. And so it will be in many markets that are being reshaped by blockchain and other disruptive technologies. Energy sector is one of them
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Are you going to post my comment?
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Steve, are you involved with PL? If so, do you have any info on the Busselton project, or is there a report available?
I was also confused how p2p trading of energy would work without involving a profiteering middleman that controls the grid. PL says that anyone can be an application host, how does this actually work? I don’t understand how the power grid works, but I just assumed it was the energy corporations/governments that had exclusive ownership and control of all the hardware, power lines and stuff and they were responsible for maintenance, repairs etc. But is it possible for some other entity, say a neighbourhood group or other non-profit group to access it?
Say I live in a suburb of Melbourne and have excess solar power that I’d like to trade with my neighbour. Currently I sell it back to the energy company on a pretty good deal that puts money in my pocket, but if I chose to use PL instead what would be my options when choosing an application host if I didn’t want to go through Origin or any other current power company?
Or, is PL better suited to areas that are not currently using state owned power grids, or suburban areas that are yet to be built that may have their own renewable energy resources built from scratch by non profit organisations?
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